The Effect of Macroeconomic Stability on Inward FDI in African Developing Countries

In this study an attempt is made to gauge the importance of prudent macro-economic management in the location choice decision of foreign direct investors. Moreover, infrastructure availability, market size, trade liberalisation and economic development are also considered, for a set of forty three African developing countries using annual data from 1990 to 2015. The results show that better infrastructure, liberalised investment and trade regimes have significant effects on FDI inflows to the African nations. Conjectured with the host market theory hypothesis, the size of the host market positively affects inward FDI. Moreover, prudent management of macro-economy and healthy business policies manifested through stable macroeconomic indicators increases the ability of the African developing countries included in the study to receive additional Foreign Direct Investment. These findings are insensitive to the use of different proxies used for the control variables.